I’ve read story after story about how to FIRE. The formula always starts with “SAVE HALF” or some similar bromide. What does save half really mean beyond the obvious application of third grade math? I was reading an article stating: “Whopping 62 percent of jobs don’t support middle-class life after accounting for cost of living” I’ve seen it proclaimed by some FIRE bloggers as if anyone can do this FIRE thing, with a bit of a sneer implying “and if you don’t you’re a dope”. To save half, means you have to make twice! Middle class is defined in the article as wages between $44K and $79K. Professional class is $79K or more. This means to save half and remain even in the low end of middle class ($44K) you have to be professional class ($88K). On the high end of the range to save half you must make nearly $160K per year. An entry level engineer makes $84K in NYC, $59K in Chicago. Save half kind of implies you have no debt after say 5.5 years of engineering school.
But wait it’s even worse! It turns out depending on where you live you may be under water even on $44K. Honolulu has a starting middle class wage of $66K and if you apply the same middle class spread the upper limit would be $118K meaning save half would require remuneration between $132K and $236K per year. You might say OK Mr. Smarty Pants, we’ll save 1/4 and work longer! Yes precisely, you will work 9 years longer. Saving half of $88K @5% for 15 years gets you $1M. Saving 1/4 of 88K for 24 years gets you the same 1M. A common scheme I have read espoused by some bloggers is all you need is 15% savings yearly. 15% of $88K is $13K. That pays you 1M in 32 years. I guess if you can land a $88K/yr job at 22 you can retire on almost $44K/yr at age 54 assuming you never get fired or laid off, and live in a cheap place. Does the parlance of a 32 year career fit the fantasy definition of RE? What is the true longevity of $1M at a 4% withdrawal? At 54 you have 11 years to Medicare. At 4% withdrawal ($40K/yr) would put your retirement 10% less than middle class ($44k). You officially get to retire poor. OK Mr Smarty Pants, we’ll work longer! Why yes, yes you will.
6 Replies to “Who gets to FIRE?”
Good point that you need to make much more than middle class average to save half and be able to retire in the range of middle class wages.
Fortunately the vast majority of doctors can shoot for the mid to upper range of middle class in retirement based on their salaries by saving 20%+ and still retire early. They say 90k/yr is where you get maximum happiness so that would be a good target to shoot for and I do think doctors could achieve that with less than 50% savings rate.
You can do what ever blows your skirt up. The point of this was to demonstrate the humbling nature of someone who actually has the were with all to FI. To over 75% of the working people the FIRE option is unavailable, especially if you then add non workers. That may push availability to about 1/8 of the population. It may well be why people have no interest in discussing FI because they understand it is simply out of their reach.
Hmmm .. so what do you recommend instead?
I know a lot of people who save 30-40% of gross income and they rapidly build wealth with that savings. It is harder with a lower income, but that may indicate a need to raise your income, not lower your savings rate.
The recommendation is to make twice to save half with a job of at least 88K per year. Since that puts you virtually in the range of poverty I would work an extra 25% years, so if 9 years work 12
I do agree that a lot of FIRE bloggers are slightly out of touch. Most either had high paying jobs or practiced extreme frugality to the point where life isn’t fun.
And not everybody can geoarbitrage to lower cost of living and still live a good life. Doctors can because they make even more money in the boonies. But every other profession can’t because of the lack of opportunity in such areas.
Bloggers do make FIRE seem so easy that everybody can do it. But you’re right, the reality is that not everybody can. With so many people who can’t even escape the cycle and culture of poverty… how can they reach FIRE?
The statistics I read were median income for all workers was $44K for all comers. 21% earned 100K+ per year and only 8% earned 160K+ per year roughly forming a normal distribution. 20% were also in the lowest part of the curve. This means to “make twice, save half” applies to maybe the upper quarter of the working population and doesn’t take into account the non workers and it doesn’t take into account the geographic variation. If you are FI or capable of FI you exist in a pretty rare atmosphere!